1996 (10) TMI 421 - SC - VAT and Sales Tax

Whether the High Court should have held that the amount of excise duty paid by the assessee/purchaser directly to the Central Excise Department on petroleum products owned by the assessee at the stage of removal from the bonded warehouses ought to have been treated as part of the taxable turnover of the purchaser within the meaning of section 5-A of the Act? Whether the High Court ought to have held that shell hexane and special boiling point spirit were liable to tax at the rate applicable to the detergents and therefore under entry 57B of the First Schedule to the Act? Held that - Appeals allowed and petitions dismissed.

Summary

Issues:
1. Liability to pay excise duty and its impact on purchase turnover for sales tax.
2. Treatment of excise duty paid by purchaser on petroleum products.
3. Tax liability on shell hexane and special boiling point spirit.

Analysis:

Issue 1: Liability to pay excise duty and its impact on purchase turnover for sales tax
The case revolved around the liability to pay excise duty and its impact on the purchase turnover for sales tax under the Kerala General Sales Tax Act, 1963. The petitioner, a petroleum products company, purchased goods from another company without sales tax, paying excise duty directly to the government. The Sales Tax Tribunal held that excise duty should be included in the purchase turnover. The High Court affirmed this decision, stating that excise duty is a duty on production or manufacture and the liability remains fixed on the manufacturer. The Supreme Court, after analyzing relevant rules and precedents, upheld the High Court's decision, emphasizing that excise duty is primarily the obligation of the producer, and any payment made by the purchaser is to meet the liability of the manufacturer. The Court dismissed the special leave petition, endorsing the High Court's interpretation.

Issue 2: Treatment of excise duty paid by purchaser on petroleum products
The Court addressed the question of whether excise duty paid by the purchaser directly to the Central Excise Department on petroleum products should be considered part of the taxable turnover of the purchaser. Referring to a previous decision of the Full Bench of the Kerala High Court, the Supreme Court approved and affirmed the decision, setting aside the High Court's ruling on this matter. The Court held that the excise duty paid by the purchaser is to be treated as meeting the liability of the manufacturer, in line with the earlier decision.

Issue 3: Tax liability on shell hexane and special boiling point spirit
In the case of shell hexane and special boiling point spirit, the Court considered whether they should be taxed at the rate applicable to detergents under entry 57B of the First Schedule to the Act. The Court noted that a similar issue was pending before a three-Judge Bench in another case. However, the respondent-assessee agreed to abide by the decision in that case and pay tax accordingly. Consequently, the Court disposed of the appeals related to this issue with no order as to costs.

In conclusion, the Supreme Court upheld the decisions of the Full Bench of the Kerala High Court regarding the liability to pay excise duty and its impact on purchase turnover for sales tax. The Court also clarified the treatment of excise duty paid by the purchaser on petroleum products and disposed of the appeals concerning the tax liability on shell hexane and special boiling point spirit based on the respondent-assessee's undertaking to abide by a forthcoming decision.